A dormitory that provides free lodging on church grounds for those attending church services facilitates public worship and qualifies for exemption from property taxes, the Ohio Supreme Court held today.

The 4-3 decision, written by Justice Terrence O’Donnell, reverses the ruling made by the state’s Board of Tax Appeals and grants a tax exemption to Grace Cathedral, Inc., for the dormitory at its Akron location.

Church Seeks Exemption from Taxes
Grace Cathedral has churches in Akron and in Cuyahoga Falls. Estimates indicate that more than 1,000 people attend Grace Cathedral’s religious services each week. The church’s leader has a televised ministry as well, which attracts followers from other parts of the country and the world. Some congregants visit Akron to attend live services.

The Akron church is exempt from property taxes. In late 2010, the church requested an exemption for tax year 2010 for two new buildings added to the 14-acre property. After some changes in its plans, the church informed the tax department that the dormitory would function as free temporary housing for visitors who attend religious services.

In May 2012, the tax commissioner denied the tax exemption for the dormitory, noting that residential property in Ohio is generally not free from taxes. Grace Cathedral appealed to the Board of Tax Appeals, which determined that the building did not meet the standards for a property-tax exemption. The church appealed.

[T]he overnight lodging for congregants on the church’s own property facilitates public worship in the ‘principal, primary, and essential way’ that qualifies the property for exemption,” the Ohio Supreme Court ruled.

[T]he overnight lodging for congregants on the church’s own property facilitates public worship in the ‘principal, primary, and essential way’ that qualifies the property for exemption,” the Ohio Supreme Court ruled.

Court Rules Dorm Is Not Taxable Property
Ohio law provides a tax exemption for “[h]ouses used exclusively for public worship, the books and furniture in them, and the ground attached to them that is not leased or otherwise used with a view to profit and that is necessary for their proper occupancy, use, and enjoyment.”

In today’s decision, Justice O’Donnell explained that the test developed by the Ohio Supreme Court in a 1949 ruling, which was upheld in a 1982 decision (Bishop v. Kinney), resolves the issues in this case. The ruling held that “incidental uses of church property will not defeat a public worship exemption when the primary use of the property is public worship,” Justice O’Donnell wrote.

“Applying Bishop v. Kinney to this case, the separate dormitory building on the church’s parcel in this case would be exempt if its primary use is for public worship or incidental to the primary use of the property for public worship and is an element in making that use possible,” he noted. “We have, however, clarified this test in later cases by allowing an exemption when the ancillary use was found to facilitate public worship in a ‘principal, primary, and essential way,’ rather than being ‘merely supportive’ of but ‘incidental to’ it.”

He reasoned that the cases cited by the tax commissioner to support denial of the exemption do not apply in this case. Two of the cases involved permanent residences for clergy, rather than temporary housing for church attendees.

As for the other cases the tax commissioner relied on, “[t]hose cases do not provide controlling precedent to resolve the instant matter,” Justice O’Donnell added. Two of them addressed whether overnight accommodations for a church camp and a church retreat were taxable, but neither “facilitate[ed] attendance at the public worship service of the church itself,” he explained. In the other cases, courts ruled that church office buildings were not tax exempt.

“[B]y contrast, the overnight lodging for congregants on the church’s own property facilitates public worship in the ‘principal, primary, and essential way’ that qualifies the property for exemption,” he wrote.

“Like on-site church parking lots, which facilitate public worship and are used only at times of worship and which routinely qualify for exemption pursuant to R.C. 5709.07(A)(2), the on-site dormitory here facilitates public worship by affording congregants proximity to attend church services and an opportunity for fellowship following services,” he concluded.

The court approved the requested tax exemption for the dormitory for tax year 2010.

Votes
Joining the majority were Justices Paul E. Pfeifer, Sharon L. Kennedy, and Judith L. French.

Chief Justice Maureen O’Connor wrote a dissenting opinion joined by Justices Judith Ann Lanzinger and William M. O’Neill.

Dissent
In Chief Justice O’Connor’s view, the dormitory does not qualify for a property-tax exemption because it is not used exclusively for public worship.

“Grace Cathedral has been very straightforward and consistent in stating that the dormitory is used for temporary housing for people visiting the church from out of town during weekends,” Chief Justice O’Connor wrote. “Thus the dormitory itself is not a “[h]ouse[] used exclusively for public worship.”   

Therefore, Grace Cathedral had to establish that the building was needed for the “proper occupancy, use, and enjoyment” of the church by demonstrating that it is used in a principal, primary, and essential way to facilitate public worship, she explained.

Identifying several “leaps of faith” she thinks the majority has made with the facts in reaching the conclusion that the building is tax exempt, she explained that “the record does not come close to establishing that the dormitory is essential to a place of public worship.”

“[I]n order to be principal, primary, and essential to the facilitation of public worship, the use of the property must not only have the ultimate objective of facilitating public worship, but it must also be directly necessary to the public worship,” the chief justice wrote. “Everything owned by Grace Cathedral is arguably used with the objective of promoting or facilitating public worship. Even the church’s Boeing 747 is likely used with this objective. But the desire to facilitate public worship is not the end of the inquiry …. Otherwise, all of Grace Cathedral’s property, and indeed any property involving or related to religious activity, would be exempt from taxation.”

She emphasized that only a small part of Grace Cathedral’s congregation stays in the dormitory, so attendance at church services is not dependent on visitors who use the dorm for lodging.

She added that the majority rejected the tax commissioner’s cited case authority while failing to analyze Grace Cathedral’s arguments when the burden should have been on the church to prove why it had a right to the tax exemption.

“Because [the majority’s] sua sponte arguments on behalf of Grace Cathedral fail to establish that the dormitory falls within the category of ‘[h]ouses used exclusively for public worship’ or ‘necessary for their proper occupancy, use, and enjoyment’ under R.C. 5709.07(A)(2) and do violence to the most basic standards of review, they should not have attracted a majority of the court,” she concluded.

2014-0373. Grace Cathedral, Inc. v. Testa, Slip Opinion No. 2015-Ohio-2067.

View oral argument video of this case.

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